PHAR-MOR Chain files under Chap. 11

Phar-Mor says it will continue to operate 74 of its 139 stores with the same merchandise and store hours. By DON SHILLING VINDICATOR BUSINESS EDITOR YOUNGSTOWN -- Phar-Mor filed for bankruptcy court protection today and said it would close nearly half its stores. The Youngstown-based discount drugstore chain said 74 stores would remain open as it tries to restructure its operations so it can begin making money. The company filed for protection from creditors this morning in U.S. Bankrupcty Court in Youngstown under Chapter 11 of the federal bankruptcy code. Phar-Mor said its principal lender, Fleet Retail Finance, has agreed to lend it $135 million to fund the company's reorganization. Phar-Mor has filed motions that ask the court to approve paying employees and vendors. Closings: A press release issued this morning did not identify which stores would close but said they are underperforming or outside the company's core markets. It said 65 stores would be closed over the next several weeks. Phar-Mor operates 139 stores in 24 states, including several in the Mahoning and Shenango valleys. The company said there will be no changes in pricing, merchandise or store hours at the stores that will remain open. The remaining 74 stores average more than $10 million in annual sales. Phar-Mor said it intends to cut corporate overhead and improve its position as a leading discount drugstore chain in the markets that it serves. Problems: Abbey Butler and Melvyn Estrin, co-chairmen and co-chief executives of Phar-Mor, said the chain's financial difficulties stem from a slowing economy, changes in consumer buying habits, increased competition from larger chains, geographic diversity of the stores, changes in credit terms by vendors and its high-cost debt. "The company plans to quickly emerge from bankruptcy with a strong regional presence in its core markets of operation," they said. David Schwartz, Phar-Mor president, said changes such as closing stores, reducing overhead and streamlining operations will be completed in six to nine months. He said the company will become a more focused and efficient operation. Phar-Mor officials have been saying for years that it must become larger in order to survive. Larger chains receive better prices for merchandise and are able to spread out their overhead costs over more stores, officials said. Acquisition: Phar-Mor bought Pharmhouse, a 32-store chain based in New Jersey, in 1999 but that acquisition dragged down profits for some time. Phar-Mor officials said the Pharmhouse chain was neglected before Phar-Mor could take over and customers stayed away for some time. That acquisition was one of several items, which have led to five straight years of losses for the chain. Expenses: Phar-Mor's bottom line has been hurt in recent years by multimillion-dollar expenses for the buyout of former chairman Robert Haft and an aborted merger with ShopKo, a Wisconsin-based retailer. Phar-Mor also has had trouble boosting its sales levels. The chain has about $1.3 billion a year in sales and is the eighth-largest drugstore chain based in the United States. It has lost $4.3 million in the first three quarters of this fiscal year. Sales for the fourth quarter, which ended June 30, have not been reported. In January, it reduced operating expenses by laying off 22 of its 250 workers at its Youngstown headquarters. It also restructured field management, eliminating 16 other positions. Phar-Mor also employs about 300 at its Tamco distribution center in Austintown.